Discussion on Risk-Oriented Auditing of Credit Business of Xinjiang Rural Credit Cooperatives_

CLC classification number: F832 Document identification: A Article number: 1009-4202 (2012) 08-000-02 Abstract This article starts from the definition and process of risk-oriented auditing and the necessity of implementing risk-oriented auditing in credit business Based on the nature of the audit, this paper preliminarily discusses how to implement risk-oriented auditing of the credit business of Xinjiang rural credit cooperatives, as well as the difficulties and countermeasures in specific practice.

Keywords Xinjiang Rural Credit Cooperatives’ credit business risk-oriented audit

1. Risk-oriented audit

Risk-oriented audit refers to the risk assessment of the audited unit as the basis It is an audit method that comprehensively analyzes and reviews the factors that affect the economic activities of the audited unit, and determines the scope and focus of the audit based on the quantitative risk level, thereby conducting a substantive review.

Risk-oriented auditing adapts to the high-risk characteristics of modern society, adopts corresponding auditing strategies for different risk factors, concentrates limited auditing resources on high-risk areas, and allocates auditing resources reasonably to improve auditing efficiency and Effect.

2. Risk-oriented audit process

The audit process model under the risk-oriented model is: first implement the risk assessment procedure to understand the audited unit and its environment (including internal control) , initially assess the degree of risk and determine the level of importance; secondly, implement control testing when auditing requires, and further assess and confirm the risk of major differences or defects; finally, conduct substantive testing, discover major differences, and reduce inspection risks to an acceptable level.

The biggest flaw of traditional auditing is that the risk assessment is not in place and the high-risk audit areas cannot be effectively discovered, resulting in excessive or insufficient auditing. Risk-oriented auditing strengthens the risk assessment process and realizes the transformation from internal control testing to risk assessment. The results of risk assessment determine the high-risk audit areas and key audit projects that auditors need to focus on, the allocation of audit resources, the nature of audit evidence, and quantity.

3. The necessity of implementing risk-oriented audit of credit business

Credit business is the main business of Xinjiang rural credit cooperatives. The quality of credit assets directly affects the survival of credit cooperatives. With development, how to strengthen and improve credit risk prevention and control through credit audit is also an important topic that is actively discussed and studied in depth by the internal audit of credit unions. The economic development of northern and southern Xinjiang is uneven. The business development speed and scale of northern Xinjiang far exceed that of southern Xinjiang, and the level of credit management is also uneven. Objectively, internal audits must be treated differently. The autonomous region association has few internal auditors and many audit units. Credit audit must be "focused and highly targeted", and it is particularly necessary to implement risk-oriented audit of credit business.

IV. How to implement risk-oriented auditing of credit business

Credit business adopts a risk-oriented model. First, risk assessments should be conducted on 84 county (city) cooperatives in Xinjiang to determine key audit objects. Second, we should pay attention to major risks and highlight the key points of auditing, such as the compliance of large-amount loan audits and the authenticity of small-amount loans, so as to reduce audit costs and improve audit efficiency. The third is to extend the audit connotation to respond to loan investment directions, loan Analyze and study risks and losses to reveal the development direction of the credit business and promote the healthy and sustainable development of the credit business of Xinjiang Rural Credit Cooperatives.

(1) Carry out risk assessment and initially determine the degree of risk and importance level

1. Preliminary analysis of the impact of the internal and external environment on credit management can be carried out using questionnaires, individual interviews, etc. risk factors and impacts. The focus of the investigation on the external environment includes: risk factors caused by the impact of the domestic economic environment, changes in agricultural policies, county economic development strategies, total county economic development and cultivated land area; factors affecting the credit environment and legal environment of the county; changes in bank regulatory measures The influencing factors etc. The focus of the internal environment investigation includes: the credit union’s business strategy and management structure; the core strength of management and management control capabilities; operating risks of credit management; system execution and process reengineering capabilities; senior management exchanges; management authority division of labor and Diligence and responsibility; internal and external supervision and penalties; establishment and implementation of rectification mechanisms; occurrences of cases, etc.

2. Implement risk assessment. Environmental investigation results can be used, and methods such as inquiry, consultation, observation, inspection, etc. can be used to carry out risk assessment from the following aspects to assess the risk of major differences or defects. For assessment scores above 85 points (inclusive), the risk level is set to low; for assessment scores between 70 (inclusive) and 85 points, the risk level is set to medium; for assessment scores below 70 points, the risk level is set to Set to high. For those with a high degree of risk, special attention must be paid to them, and the audit strategy of "strengthening the frequency of inspections and expanding the scope of audits" can be adopted for specific implementation.

3. Determine the importance level based on the risk assessment results. Materiality refers to the severity of differences or defects in the operating activities and internal controls of the audited unit that deviate from specific objectives. Auditors need to convert risk assessment results into audit strategies, determine the importance level of audit matters, reasonably allocate audit resources, and reduce audit risks. Credit audit matters of Xinjiang Rural Credit Cooperatives include loans, bills, and foreclosed assets.

(2) Carry out control testing procedures

Control testing is the auditor’s judgment on the level of internal control based on risk assessment. If the risk level is low, necessary control tests need to be carried out and effective evidence collected to support the judgment of low control risk; if the risk level is high, substantive testing can be entered directly. Control testing can use inspection, inquiry, analysis and observation, walk-through testing, etc.

1. Check. Review the loan review committee, credit authorization, loan interest rate pricing, job responsibilities, credit approval process, new loan business processing and other information, and check whether the internal credit management (system) is sound and effective, whether the interest rate pricing is compliant, and whether there are any hidden risks in the process design , whether the establishment of new business types is legal and compliant, etc.

2. Ask and observe. Inquire with management and relevant personnel, and observe business operation processes, such as the handling process of each position, transfer of information, management of credit files, etc., to check whether they are consistent with regulations and inquiry results.

3. Analysis. Review the business status statement and five-level classified information data, compare with the business plan, compare trends with the loan data of the previous year, compare with the scale of local agricultural economic development, and analyze whether the development speed of the loan business is normal and reasonable, etc.

4. Walk-through test. Select samples for walk-through testing. The selection of samples needs to be closely combined with the materiality level table in Table 2. An appropriate number of samples should be selected for audit matters above the materiality level. By reviewing credit information and control implementation, determine whether the business processes and related controls are consistent with the information obtained through the aforementioned procedures, and whether there are any major implementation deviations.

After executing the above procedures, if the design and execution deviations are small, it can be determined that the control risk is low, and the scope of substantive procedures can be narrowed in the next step; if the design and execution deviations are both large, it can be determined Control risks are higher and more substantive procedures need to be taken.

(3) Carry out substantive testing procedures

After auditors evaluate the risks of major differences and deficiencies in credit management, they should implement reasonable and effective substantive procedures to check the risks controlled within acceptable limits. For audit matters with low control risk and low importance level, the proportion of random inspections can be reduced; otherwise, focus on random inspections. Substantive procedures include detailed testing and substantive analysis procedures, both of which can be used together.

1. Detailed testing. For audit matters with high control risk and high importance level, the detailed inspection method is adopted; for audit matters with low control risk and low importance level, the spot inspection method is adopted. When selecting samples, attention should be paid to: first, risk priority should be given, that is, loan types with higher risks and loans with larger amounts should be selected, because they have a greater impact on credit quality; second, they should be representative and try to include all types of loans. For important audit matters with high control risk and large transaction volume, a larger sample size should be selected to carry out detailed testing. For credit loans and farmer household joint guarantee loans, the confirmation procedure should be paid attention to.